Chinese Researchers Say China's Labor Supply Drying Up

Chinese reports say the country's vast pool of cheap labor is getting smaller, which could hurt an economy that is heavily dependent on labor-intensive manufacturing. Claudia Blume in Hong Kong has more.

China's vast supply of low-cost labor has been the backbone of its rapid economic expansion in the past three decades. But according to a leading research organization, the Chinese Academy of Social Sciences, the days of a limitless oversupply of workers are coming to an end.

The academy's research shows that China's rural labor surplus, the source of migrant workers for the country's factories, is about 50 million people - far less than the previously estimated 150 to 200 million.

Jonathan Unger, director of the Contemporary China Center at the Australian National University, says fewer rural residents are willing to leave their farms today. This is partly because there are more employment opportunities in rural areas, and because agricultural prices have gone up.

"And at the same time taxes in the countryside, fees in the countryside have gone down because of new sets of government policies," he explained. "And so people are not desperately forced in the way they were five, six years ago to leave the farm in order to earn enough money for their families, in order to help support their families at home."

The Chinese Academy of Social Sciences says another reason for the reduced labor pool is the country's population policy, which allows city dwellers to have just one child, and farmers up to two if the first one is a girl.

A United Nations study predicts that China's workforce will peak in 2015 and then gradually drop. Some of China's major manufacturing areas, such as Guangdong province, already face labor shortages.

Some economists think these shortages are, at least for now, a regional rather than a national problem. Sun Mingchun, an economist with investment bank Lehman Brothers in Hong Kong, points out that there are still millions of people in China who can not find work.

"The government has a goal of creating like nine million, ten million jobs per year," Sun said. "But if you look at the new increase last year - the increase was only six million. There are still three, four million people who can't find a job."

The average monthly income of rural migrant workers has increased significantly in the past few years, going up 11-and-a-half percent in 2006 and 20 percent in 2007. Sun and Unger say the main reason wages have gone up is inflation, which means spending power has not risen as much.

Rising labor costs and a shortage of workers in some areas are part of the reason that some foreign manufacturers have started to move production to other, cheaper parts of Asia, for example neighboring Vietnam.